business game:
banks in action
creator = bill glass, usa
owner = junior achievment
Youth Business Center:
about banks...
Welcome to the exciting world of money and finance! Everybody is interested in
money, and bankers deal with more of it than anyone. You and your friends have
just taken over a bank and are now responsible for managing all the money in it.
You will learn how bankers make decisions and practice making banking decisions
yourself. The most successful bankers are those that make their bank bigger than
their competitors and manage to keep the most money, or profits, for
themselves.
Banking is as old as money so bankers have been around for a long time. The
original purpose for banking was safeguarding money. Whether money was represented by shells, coins, or paper, those who had it wanted to
keep it and needed a safe place to put it. Bankers offered protection for money by building
secure, protected locations where others could store money for a fee.
Bankers learned that rather than just keeping money in one place, they could
earn higher fees by loaning the money to those who had plans to invest it to
make more money in the future. Since those people did not have enough money to
carry out their plans, they were willing to pay for the use of the money until
their plans paid off. Payment for the use of money was called interest. Bankers soon calculated they could obtain more interest from those to whom they
loan money if they have more money to loan. To attract more money from more
people, they started paying interest to those who would store their money in the
bank. Bankers could keep the difference between the interest they received from
those to whom they loaned money and the interest they paid to those from whom
they borrowed or who stored money in their banks.
The primary function of bankers soon became matching up those who had more money
or capital than they needed with those who needed money or capital to realize
their plans. This not only made money for the bankers, but also helped expand
the overall economy more rapidly by providing an efficient means to fund investments.
Moving money from those who have extra to those who need more can be trickier
than it sounds. Sometimes those who have extra money today need it tomorrow and
come to the bank to take their money out. If that money has been loaned out and
is not in the bank, the banker has a big problem. One way bankers avoid this
problem is to keep a certain percentage of their money at the bank where it is
always available. Another way of avoiding a mismatch is to specify how long a
deposit must remain in the bank and when a loan must be paid back. A bank can
pay more interest to depositors who leave their money for a fixed period of time
and/or charge less to a borrower who agrees to pay the money back in a fixed
period of time. By matching up the time periods, a bank incurs less risk and so
can get by with a lower margin between the two interest rates.
Because of banks' importance in the functioning of the economy, the government
has developed a set of rules to guide bankers in making decisions and protect
society from the consequences of bad ones. Government regulations include how
much banks must keep on hand to repay depositors and how much they can loan out.
Banks must also purchase insurance to protect their depositors if they are
unable to collect their loans in a timely fashion.Governments use the government bank to regulate the actions of banks and ensure
that they are conforming to banking rules. The government bank also is a bank of
last resort for bankers. It accepts deposits and loans money to banks who fail
to match up these funds on their own for a fee, of course.
